Money for Nothing

The EU's plan to reduce carbon emissions by 20% by 2020 will most likely cost at least €150 billion a year, yet it will postpone temperature increase due to global warming by just two years, from 2100 to 2102. For that money, we could provide clean drinking water, sanitation, education, and health care to everyone on the planet, while increasing CO2-reducing R&D ten-fold.

COPENHAGEN – When it comes to global warming, we have plenty of hot rhetoric but very little cool reason. This matters immensely, because the Kyoto Protocol is already among the most expensive global public policies ever enacted, and the follow-up in Copenhagen in late 2009 promises to break all records. We better get it right, but right now we’re more likely to pay for virtually nothing.

A good example is the European Union’s newly instituted policy of cutting CO2 emissions by 20% by 2020. Of course, it is always easier to promise than to deliver – a concern that is especially relevant in the EU. Yet, even if the promise is kept, will the benefit outweigh the cost? Curiously, but not surprisingly, this is not discussed very much.

A 20% reduction in the EU’s CO2 emissions, vigorously enforced throughout this century, would merely postpone temperature increases due to global warming by two years at the end of the century, from 2100 to 2102 – a negligible change. Yet the cost would be anything but negligible. The EU’s own estimate is about €60 billion annually , which is almost certainly a vast underestimate (its previous estimate was almost twice as much), since it requires the EU to make the reductions in the smartest way possible.

However, the EU doesn’t just want to cut emissions in the smartest possible way, but also to increase the share of renewable energy in the Union by 20% by 2020. This increase has no separate climate effect, since we’ve already promised to cut emissions by 20%. However, it does manage to make a poor policy decision dramatically worse.

The debate in my native Denmark is instructive, as the relevant government ministries have outlined what this decision will end up costing here, which in turn suggests the total cost for the EU. The annual cost of an increase in renewable energy of less than 20% (18 percentage points) – and five years later, by 2025 – will be more than €2.5 billion. And the benefit? If Denmark sticks to this decision throughout the rest of this century, it will spend more than €200 billion to postpone global warming by five days.

Is that a sensible decision? The total advantage to the world (measured according to all relevant criteria, such as lives saved, agricultural production increased, wetlands preserved, etc.) from Denmark’s policy would be about €11 million. Or, for every euro spent, we would do a bit less than half a cent worth of good.

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To put this in perspective, €2.5 billion could double the number of hospitals in Denmark. And, if we really wanted to benefit the world, €2 billion could halve the number of malaria infections, saving 850 million lives this century. People in the affected countries would live much better and become more productive, benefiting their children and grandchildren in 2100. The last €500 million could fund an eight-fold increase in research and development aimed at improving CO2-efficient energy technologies, enabling everyone in the long run to reduce emissions much more dramatically, and at much lower cost.

So, should we halve malaria while dramatically increasing the possibility of solving global warming in the medium term? Or should we make a pledge that does 2,000 times less good and barely alters the global climate?

It gets worse. The €2.5 billion estimate assumes that politicians pick the cheapest renewable energy alternative. Yet Danish politicians seem intent on choosing much more expensive solutions, implying a two-fold (or more) increase in cost. The opposition – trying to trump the government – insists on an almost 40% increase in renewable energy, at a cost of almost €10 billion annually, with every euro doing just €0.025 worth of good for the world.

Using the Danish figures to calculate EU-wide costs, the total is likely to be more than €150 billion annually, with every euro doing just half a cent worth of good. And this assumes that politicians pick the best options, and that oppositions don’t try to out-do their governments.

The same money could triple the global development aid budget. It could easily provide clean drinking water, sanitation, education, and health care to every human being on the planet, while increasing CO2-reducing R&D ten-fold.

The EU’s goal of a 20% reduction by 2020 is an incredibly expensive way to signal good intentions.  But wouldn’t we rather do real good? The EU believes it is showing the way, but if the world follows the Union, it seems that we are more likely simply to become lost.